Democratic hopefuls take aim at insurer and pharma profits

Paul Sancya | AP

Paul Sancya | AP

Sen. Bernie Sanders, I-Vermont, speaks during a Democratic presidential primary debate in Detroit, July 30, 2019. Sanders and other progressives seeking the Democratic presidential nomination are zeroing in on pharmaceutical and insurer profits, money they say would be better spent providing health care for everyone under “Medicare for all.” But research by The Associated Press suggests those dollars might not go so far.

WASHINGTON — Sen. Bernie Sanders and other progressives seeking the Democratic presidential nomination are zeroing in on pharmaceutical and insurer profits, money they say would be better spent providing health care for everyone under “Medicare for all.”

Their idea: Health care dollars from government programs, employers and families that are going into the pockets of investors instead could be used to pay for services. If people want a health care system that will not bankrupt them, “the answer is to get rid of the profiteering of the drug companies and the insurance companies [and] move to Medicare for all,” Sanders said during the recent Democratic debates.

But research by The Associated Press suggests those dollars might not go so far. While there’s no single ledger for drugmakers and insurers, the AP found major companies had about $97 billion in profits last year. That wouldn’t even cover a couple of weeks in a health care system that costs $3.6 trillion a year.

“My view is that we are having a debate in fantasy world,” said Marc Goldwein, senior policy director with the nonpartisan Committee for a Responsible Federal Budget. “Insurer profits and excess drug costs are large in dollar terms but small relative to the size of national health expenditures.”

To be sure, Sanders and other Medicare for all advocates also acknowledge the need to raise taxes to pay for the plan. It would offer comprehensive medical care to every U.S. resident with no premiums or deductibles, and virtually no copays.

But Sanders’ legislation does not specify new revenues. Instead, the Vermont independent provides a separate list of “options” that include higher taxes on the wealthy, corporations and employers while promising the middle class will be better off.

In a statement, Sanders’ office said he believes that “guaranteeing health care for all Americans as a right requires ending the profit motive of the insurance industry.”

It added that Sanders “sees a role for pharmaceutical innovation, but opposes a rigged system that allows corporations to use their monopoly power to charge Americans … more for the exact same lifesaving drugs that can be purchased in Canada, the UK, France, Japan, and Germany.”

During the last round of Democratic debates, Sens. Elizabeth Warren of Massachusetts and Kamala Harris of California joined Sanders in training rhetorical fire on drugmakers and insurers. They had their own profit estimates.

“Insurance companies do not have a God-given right to make $23 billion in profits and suck it out of our health care system,” Warren said.

“Let’s talk about math,” Harris said. “Let’s talk about the fact that the pharmaceutical companies and the insurance companies last year alone profited $72 billion, and that is on the backs of American families.”

For its estimate, the AP reviewed the financial statements of the eight for-profit, publicly traded health insurers in the U.S. and found they made around $26 billion total last year. Their profit margins averaged a little more than 4 percent. The list included UnitedHealth, Anthem and Humana.

Some major insurers outside this group are nonprofit and plow their earnings back.

A spokeswoman for America’s Health Insurance Plans, the main insurer trade group, said the vast majority of premiums go to health care. The group’s website cites an estimate that about 80 cents of every premium dollar goes for medical care, and only about 2 cents goes to profit. Other expenses included administration and taxes.

For drugmakers, the AP asked FactSet, a global financial data firm, to run the numbers for major pharmaceutical and biotechnology companies. FactSet focused on 19 companies that are part of the Standard & Poor’s 500 stock index. Its analysis found they made $71 billion on revenues of $385.5 billion last year, with an average profit margin of 18 percent. The list included Johnson & Johnson, Merck, Gilead, Amgen and Pfizer.

The Pharmaceutical Research and Manufacturers of America said such calculations are too simplistic and don’t convey the full picture.

Harvard University health care economist Amitabh Chandra said focusing on the profitability of major drugmakers misses a crucial part of the drug industry’s story. Many companies engaged in research and drug development don’t make money and are instead kept afloat by investors hoping for discoveries that will lead to big returns.

“It’s incomplete — it’s not the universe of all companies,” Chandra said. “It’s sort of like saying lottery winners are rich.”

He cautioned against health care remakes that just try to squeeze the profits.

“There have been some proposals that put 100 percent tax on pharma profits. That’s the equivalent of putting up a giant billboard that says ‘Don’t Make Drugs.'”

But Medicare for All proponents have found a simple, appealing argument for their proposal, said Tara O’Neill Hayes, a health policy expert with the American Action Forum, a center-right think tank. It skips over the complexities of a plan that would put 18% of the economy under government control.

“It is really easy, and it sells with the general public,” Hayes said. “People like to have an enemy, and they like to point to someone as the problem. We’ve known that for decades.”